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Banks May Be Given Incentive To Extend Loans in Backward Areas: RBI Dy Guv MK Jain

The RBI Deputy Governor made a case for incentivizing banks to extend loans to poorer areas in backward regions to promote financial inclusion. While agricultural credit has grown impressively, there are still challenges as only 72% of credit needs of farm households are met institutionally with 28% coming from non-institutional sources. There is also uneven distribution of institutional agricultural credit across states. The Deputy Governor suggested incentivizing banks to lend in backward areas to address both demand and supply side issues. He also urged NABARD to earmark funds like the Rural Infrastructure Development Fund for the most credit-starved backward regions.

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39 views4 pages

Banks May Be Given Incentive To Extend Loans in Backward Areas: RBI Dy Guv MK Jain

The RBI Deputy Governor made a case for incentivizing banks to extend loans to poorer areas in backward regions to promote financial inclusion. While agricultural credit has grown impressively, there are still challenges as only 72% of credit needs of farm households are met institutionally with 28% coming from non-institutional sources. There is also uneven distribution of institutional agricultural credit across states. The Deputy Governor suggested incentivizing banks to lend in backward areas to address both demand and supply side issues. He also urged NABARD to earmark funds like the Rural Infrastructure Development Fund for the most credit-starved backward regions.

Uploaded by

KARTHIK R
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Banks may be given incentive to extend loans in backward areas: RBI

Dy Guv MK Jain

RBI Deputy Governor MK Jain on Wednesday made a case for incentivising banks to extend
loans to poor in backward areas in a bid to promote financial inclusion. Speaking at an event
organised by the National Bank for Agriculture and Rural Development (NABARD), Jain said
despite impressive growth in formal agriculture granted, there are still several challenges
which need to be tackled.

Data on the average loan taken by agricultural households indicated that 72 per cent of the
credit requrement was met by institutional sources and 28 per cent from non-institutional
sources, he said quoting NABARD Financial Inclusion Survey Report 2016-17.

Further, the analysis of state-wise flow of institutional agriculture credit has revealed uneven
distribution of credit among states, compared to their corresponding share in their overall
output, he said. To a certain extent, the deputy governor said such regional disparity is on
account of variation in credit absorbtion capacity of these region.
"We may also have to think of the ways to incentivise banks to lend in these backward areas so
that both the demand and supply side issues are addressed," he said. He also exhorted
NABARD to think of steps by which funds like Rural Infrastructure Development Fund can be
earmarked to the most backward credit starved regions of the country to ensure faster
development.
Retail inflation: The options before Reserve Bank of India
• RBI may do a balancing act between checking inflation and pushing growth in its
December policy
• Apart from the inflation data, the MPC will also look at the recent data on factory
output, which shrank for the second straight month in September
• With retail inflation breaching the central bank’s 4% medium-term target in
October, attention has shifted to what the Reserve Bank of India will do at
the monetary policy meeting in December.
• The consensus among economists is that the central bank is likely to do a
balancing act between checking inflation and pushing growth in its December
policy, with most of them expecting another rate cut next month.
• Apart from the inflation data, the monetary policy committee (MPC) will also
look at the recent data on factory output, which shrank for the second straight
month in September .
• The MPC will also have the September quarter GDP data when it meets in
December. In the June quarter, India reported its weakest growth in more than six
years at 5%. The latest GDP estimates by banks indicate that the economy may
slow down further. Nomura, for instance, has projected September quarter growth
to decelerate to 4.2%.
• After the October MPC meeting, governor Shaktikanta Das said the central bank
will maintain its accommodative stance as long as it is necessary to revive growth,
even as it ensures that inflation remains within target.
• In October, the MPC cut the repo rate by 25 bps for the fifth straight time, taking
the cumulative reduction in repo rate to 135 bps since January.
• Though CPI inflation could continue to overshoot the MPC’s target of 4% by 50bps
in the next few months, core inflation is likely to remain moderate and therefore
the MPC may assign a higher weight to reviving growth, according to Upasna
Bhardwaj, chief economist of Kotak Mahindra Bank.
• “We continue to expect the MPC to cut the repo rate by another 50 bps in the rest
of FY2020 as some of the increase in food inflation is seasonal and abundant
rainfall should lead to lower food prices ahead," Bhardwaj said in a note.

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